The succession of Official Cash Rate (OCR) cuts through the second half of 2024 has injected a degree of hope into the commercial property market for next year, say Bayleys market commentators.

On November 27, The Reserve Bank announced the OCR would be cut by 50 basis points to 4.25 percent. It is the third consecutive OCR cut since August, when the Reserve Bank announced it would drop the rate to 5.25 percent; the first OCR cut since March 2020.

Looking back over 2024, Bayleys national director commercial, Ryan Johnson says the August OCR announcement was an economic turning point in the year and is generating a cautiously positive outlook for 2025.

“Everything this year has hinged on inflation and interest rates from the investment point of view, and the cost of living combined with working from home from an occupier point of view. That then had downstream effects into logistics and industrial, hospitality, office and high street retail,” Johnson says.

“The first OCR change in August gave the market hope rather than huge confidence or surprise, with swap markets having priced in the change as expected.

“By the second change in October that hope was morphing into confidence. What we’d expect with this third cut, the last for this year, is that it will turn into structural confidence where action is being taken.”

Johnson believes commercial property returns will also start to look more attractive to those who’ve kept their funds in the bank, creating a record level of bank deposits at close to $214 billion.

“With after tax real returns of around one percent for 2025 on those funds, the commercial property market will start to look like a better option,” he says.

With monetary policy changes typically taking about 15 months to make an impact on the market, change will be gradual, Johnson says.

“The key thing is those who don’t have time to wait another 12 to 15 months to make key commercial property decisions, should have the confidence to transact now, without fear of a detrimental outcome.”

Bayleys national director industrial and logistics, Scott Campbell says since the first OCR change in August more companies have been starting to acquire property.

“We expect that to continue into the start of next year, with plenty of equity circling the market.”

One of the biggest challenges through 2024 has been a misalignment of pricing between the divestment/investment perspective and the rental perspective, Campbell says. “There’s been a disconnect there, which always happens in a changing market.”

By the end of the first quarter of 2025, Campbell says an ongoing increase in sales can be expected. While leasing might take slightly longer to pick up, there should be overall improvement throughout the year, he says.

Bayleys national director retail sales & leasing, Chris Beasleigh says though it’s been a tough year for New Zealand retail, the arrival of new brands such as Panda Mart has shown there is room in the market for newcomers to thrive.

“That’s largely driven by the cost-of-living crisis which has encouraged consumers to explore different options,” Beasleigh says. “The improved viability of new projects for major retailers as land, infrastructure and construction costs reduce, is also cause for confidence and should present opportunities in 2025.”

Bayleys national director occupier strategy and solutions, Steven Rendall says the emerging trend for both public and private sector organisations to mandate staff return to the office may create movement in the Auckland office market.

OCR shifts have generally been perceived positively, with a number of unlisted funds, syndicators and family office investors signalling an intention to return to the market in the expectation of further rate cuts, Rendall says.

In the tourism and hospitality sector, improved flight schedules and gradually rebounding international visitor numbers have helped bolster market activity through 2024.

Bayleys national director hotels, tourism & leisure, Wayne Keene says there is a notable uplift in buyer enquiry for tourism-related property assets, particularly from offshore, with a number of Bayleys deals in progress.

“Despite a weaker New Zealand dollar against many currencies, some funding challenges remain, although buyer interest in the $10-million-plus market shows that private wealth is circulating.

“There are signs that the domestic market is starting to turn, and further cuts to the OCR and lending rates will be welcomed by buyers and sellers alike.”